New Zealand 2010-11 Budget
Today, the New Zealand Minister for Finance, Hon Bill English released the 2010-11 NZ Budget.
This Budget will aim to scale back Government spending and improve the state of public finances into the long term. However, the effect of the global financial crisis and subsequent government response has left New Zealand’s net debt position growing over the next four years, peaking to 27% of GDP in 2014/15.
The stated goal from the conservative National Party Government is to ensure long term economic growth and stability in order to address structural problems which have contributed to growth averaging less than 1% between 2005 and the start of recession in 2008.
New funding has largely been prioritised to health and education services. Three quarters of the $1.1 billion operating allowance has been allocated to improving health and education and lifting science and innovation. The bulk of new capital investments will be committed to infrastructure improvements to rail transport and the construction of the nationwide broadband network.
The significant structural change is the overhaul of the taxation system, involving an increase in the GST from 12.5% to 15%, reduction of the company tax rate from 30% to 28% and cutting income taxes across the board.
The Minister for Finance’s Budget executive summary is available here.
Key Economic Indicators
|Growth (annual average % change||-0.3||3.2||3.1||2.9||3|
|Inflation (annual % change from March Qtr||2.2||5.9||2.4||2.4||2.4|
|90-day interest rate||2.7||4.3||5.2||5.4||5.7|
|Net Debt ($b)||26.6||40||49.6||57.1||63|
|Net Debt (% of GDP)||14.1||19.6||23||25.3||26.5|
Key Taxation Changes
- GST increases from 12.5% to 15%
- Company tax rates will fall from 30% to 28%
- Income tax will fall in all brackets from October 1 2010.
- o Tax on Income to $14,000 will fall from 12.5% to 10.5%
- o Tax on Income between $14,001 and $48,000 will fall from 21% to 17.5%
- o Tax on Income between $48,001 and $70,000 will fall from 33% to 30%
- o Tax on Income over $70,000 will fall from 38% to 33%
- Landlords and businesses will no longer be able to claim depreciation on buildings that are expected to increase in value.
- Rules around ‘loss attributing qualifying companies’ which may be used by property investors to reduce their tax payments will be tightened.
- All benefits including NZ Super and working for families will increase by 2.02% to compensate for the increase in GST.
Key spending initiatives
- Most Government agencies have received little, if any, increase in funding from this Budget.
- Three quarters of the $1.1 billion operating allowance has been allocated to improving health and education and lifting science and innovation.
- An extra $2.1bn is being spent on health over the next four years, which includes $1.7bn of new operating funding.
- Funding for schools is going up by $1.4bn over the next four years, which includes $350m in new operating and capital funding for school property.
- $321 million over four years for a range of R&D initiatives, lifting total spending to $750 million a year.
- Future capital allowances to fund the Weathertight Homes solution will be reduced from $1.45 billion to $1.39 billion for 2011 to 2012.
- $500 million for the electrification of Auckland commuter rail
- $250 million for service improvements by KiwiRail
- $200 million for roll out of nationwide, ultra fast Broadband network (in addition to the $200 million provided in Budget 2009).